The Successor to Keynes

2014-05-19It’s interesting to draw a parallel between Thomas Piketty’s new book Capital in the Twenty-First Century and the economics of John Maynard Keynes.

Europe is abuzz with Capital in the Twenty-First Century by French economist Thomas Piketty, released in Europe in March of this year and now a best-seller. It has since crossed the Atlantic and is already the number-one best-seller for booksmith Amazon. It has been called a “blockbuster” of a book, and many reviewers believe that it has the ability to revolutionise the study of economics.

Here are a few quotes from reviews:

In Piketty’s view, the solution is a measure beyond the political reach of any individual nation or international body, as they are now constituted: a global wealth tax. Only such a tax “would contain the unlimited growth of global inequality of wealth, which is currently increasing at a rate that cannot be sustained in the long run.”—Thomas B. Edsall

Many of the book’s 700 pages are spent marshalling the evidence that 21st-century capitalism is on a one-way journey towards inequality – unless we do something. … Piketty's call for a “confiscatory” global tax on inherited wealth makes other supposedly radical economists look positively house-trained. He calls for an 80% tax on incomes above $500,000 a year in the US, assuring his readers there would be neither a flight of top execs to Canada nor a slowdown in growth, since the outcome would simply be to suppress such incomes. … Piketty’s Capital, unlike Marx’s Capital, contains solutions possible on the terrain of capitalism itself: the 15% tax on capital, the 80% tax on high incomes, enforced transparency for all bank transactions, overt use of inflation to redistribute wealth downwards.—Rosaline Christine McGreevy

His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality. … A work of extraordinary ambition, originality, and rigor, Capital in the Twenty-First Century reorients our understanding of economic history and confronts us with sobering lessons for today.—Amazon

The words, “Brilliant!” Ground-breaking!” and “Visionary!” will no doubt be seen in many reviews of Mr. Piketty’s book. He has written some 700 pages and gone back as far as the eighteenth century in his research, so few would doubt that he has been thorough.

And there can be no doubt that the world is presently facing greater economic turmoil than it ever has in history. One might say that his tome is “right on time.”

So let us examine his principal conclusions and learn why so many people are seeing his vision as the answer to the world’s troubles.

He recommends:

Uniform global taxation

Confiscatory tax on inherited wealth

15% tax on capital

80% tax on annual incomes over US$500,000

Enforced transparency on all bank transactions

Overt use of inflation to redistribute wealth downwards

Why didn’t anyone else think of this brilliant plan?

Well actually, they did. In fact, the above is essentially the shopping list of the IMF, the EU, the OECD and, in fact, many of the governments that make up what was formerly described as “the free world.” Piketty’s “vision” so closely follows the visions of these entities that, if he did not exist, they might have had to invent him.

After all, if governments come up with an economic plan that is dramatically socialistic, they might be regarded as being somewhat suspect. However, if an economist, who is of course “independent” in his thinking, offers a grand solution, it becomes easier for the masses to swallow.

Readers of International Man are likely to take a different view. They may argue that the observation that, “satisfactory answers have been hard to find for lack of adequate data and clear guiding theories,” is poppycock. Libertarians and contrarians have been offering very real solutions for decades. Unfortunately, Boobus humanus rarely bothers to pay attention to any view that is not the one currently being promoted by the governments of the day.

As Doug Casey says so accurately:

Even when people recognize and intellectually understand the philosophy of personal freedom and responsibility, most just can’t integrate it into themselves emotionally. And others simply refuse to grasp it intellectually. I’m afraid libertarianism is fated to appeal to only a small minority.

It’s interesting to draw a parallel between Mr. Piketty and John Maynard Keynes. Mister Keynes published his The General Theory of Employment, Interest, and Money in 1936. It was therefore well timed to provide the populace (who were then struggling with the Great Depression) with a brilliant solution from a Cambridge-educated economist.

Mister Keynes’ book was an instant hit with most all governments of the day, as it endorsed more state-controlled, socialistic economic principles. Since 1936, Keynesian economics has been the standard for most all governments and is regularly referred to, to explain why they employ such confiscatory policies.

Now, just in time for the Greater Depression, fate has delivered what we might term Mister Piketty’s “Revised Keynesianism”—an economic standard for the twenty-first century, and one which takes the power of governments up several notches.

Will the governments of the world respond to this new vision and announce that Mister Piketty has “shown the way” out of the current debacle, which has been blamed on capitalism?

Most definitely. Just as Mister Keynes was “just right” for the goals of governments in the twentieth century, Mister Piketty is just right for the goals of governments in the twenty-first century. And, as in the Great Depression, the great majority of people will not only accept the new approach, but applaud.

Of course, those of us with a libertarian bent could simply choose to regard Mister Piketty as a misinformed academic who fails to understand economics, but this would be a mistake.

Yes, there are many people today who are thinking in a more libertarian direction. Indeed, many are seeking to internationalise themselves in order to save their liberty and their wealth. Far more people, however, who also fear the downfall of the present economic system, are sitting tight, in the hope that the light will suddenly go on in the minds of economists and political leaders alike, that what is needed is a more free-market society. This group of people hopes that national leaders will “come to their senses” and reverse the trend toward socialism and fascism.

These latter people might do well to consider that the blueprint for the future has now been published. The blueprint implies that the reason Keynesianism has failed is not that it was socialistic. We are told that it failed because it was not radical enough; not far-reaching enough. A more totalitarian Keynesianism was needed and has now been provided.

If the reader lives in the EU, US, or other country whose economic direction is similar, he is left with the question of whether it is in his interest to remain in a jurisdiction that is likely to become even more totalitarian during and after the Greater Depression.

Editor’s Note: International diversification is the solution and your ultimate insurance policy.

It gives you options and frees you from absolute dependence on any one country.

Achieve that freedom, and it becomes very difficult for any single government to control your destiny.

It’s admittedly late in the game, but not too late to get started, which is why I recommend doing it sooner rather than later. The free IM Communiqué is a great place to start.